<PAGE>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the quarterly period ended March 26, 2006

                                       or

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from _______________________ to ______________________

                        Commission File Number: 033-43247

                          INSURANCE AUTO AUCTIONS, INC.
             (Exact name of registrant as specified in its charter)


                                                                  95-3790111
            ILLINOIS                                          (I.R.S. Employer
(State or other jurisdiction of                              Identification No.)
incorporation or organization)


     TWO WESTBROOK CORPORATE CENTER, SUITE 500, WESTCHESTER, ILLINOIS 60154
               (Address of principal executive offices)(Zip Code)

                                 (708) 492-7000
              (Registrant's telephone number, including area code)


         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X]

         Indicate by check mark whether the Registrant is a large accelerated
filer, an accelerated filer or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Act.
Large Accelerated Filer  [ ]  Accelerated Filer  [ ]  Non-Accelerated Filer [X]

         Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

         The number of shares outstanding of the registrant's Common Stock, par
value $.01 per share, as of May 10, 2006: 100 shares






<PAGE>
                          INSURANCE AUTO AUCTIONS, INC.

                                    FORM 10-Q

                                TABLE OF CONTENTS



<TABLE>
<CAPTION>
                                                                               PAGE NUMBER
                                                                               -----------
<S>                                                                            <C>
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

        Condensed Consolidated Balance Sheets..............................         1
        Condensed Consolidated Statements of Operations....................         2
        Condensed Consolidated Statements of Cash Flows....................         3
        Notes to Condensed Consolidated Financial Statements...............         4

Item 2. Management's Discussion and Analysis of Financial Condition
           and Results of Operations.......................................        14
        Overview  .........................................................        14
        Significant Items Affecting Comparability..........................        14
        Acquisitions and New Operations....................................        14
        Results of Operations..............................................        14
        Financial Condition and Liquidity..................................        15

Item 3. Quantitative and Qualitative Disclosures about Market Risk.........        18

Item 4. Controls and Procedures............................................        19

PART II. OTHER INFORMATION.................................................        20

Item 1.  Legal Proceedings.................................................        20

Item 1A. Risk Factors......................................................        20

Item 6.  Exhibits..........................................................        20

SIGNATURES.................................................................        22

</TABLE>


<PAGE>


                                     PART I
                              FINANCIAL INFORMATION

                 INSURANCE AUTO AUCTIONS, INC. AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                 (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                         SUCCESSOR               SUCCESSOR
                                                        ------------            ------------
                                                          MARCH 26,             DECEMBER 25,
                                                            2006                   2005
                                                        ------------            ------------
                                                        (unaudited)
<S>                                                      <C>                    <C>
ASSETS
Current assets:
  Cash and cash equivalents                              $  35,752              $  25,882
  Accounts receivable, net                                  50,226                 46,920
  Inventories                                               20,539                 19,611
  Income taxes receivable                                    2,723                  2,732
  Deferred income taxes                                      7,302                  8,511
  Other current assets                                       5,401                  5,323
                                                         ---------              ---------
      Total current assets                                 121,943                108,979
                                                         ---------              ---------
Property and equipment, net                                 78,188                 77,231
Intangible assets, net                                     124,425                126,378
Goodwill                                                   193,297                191,266
Other assets                                                10,683                 11,006
                                                         ---------              ---------
                                                         $ 528,536              $ 514,860
                                                         =========              =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                       $  44,285              $  38,022
  Accrued liabilities                                       24,333                 17,445
  Obligations under capital leases                             363                    367
  Current installments of long-term debt                     1,143                  1,143
                                                         ---------              ---------
      Total current liabilities                             70,124                 56,977
                                                         ---------              ---------

Deferred income taxes                                       38,066                 37,582
Other liabilities                                           12,530                 12,765
Obligations under capital leases                               230                    329
Senior notes                                               150,000                150,000
Long-term debt, excluding current installments             112,896                113,183
                                                         ---------              ---------
      Total liabilities                                    383,846                370,836
                                                         ---------              ---------

Shareholders' equity:
  Common stock, par value of $.01 per share
    100 shares authorized, issued and outstanding               --                     --
  Additional paid-in capital                               150,628                149,458
  Retained loss                                             (5,938)                (5,434)
                                                         ---------              ---------
      Total shareholders' equity                           144,690                144,024
                                                         ---------              ---------
                                                         $ 528,536              $ 514,860
                                                         =========              =========
</TABLE>


See accompanying notes to condensed consolidated financial statements.



                                       1
<PAGE>

                 INSURANCE AUTO AUCTIONS, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED
                                                                   -------------------------------
                                                                    SUCCESSOR         PREDECESSOR
                                                                   -----------       -------------
                                                                    MARCH 26,          MARCH 27,
                                                                      2006                2005
                                                                   -----------       -------------
                                                                             (unaudited)
<S>                                                                <C>                 <C>
Revenues:
     Fee income                                                    $ 66,779            $ 61,100
     Vehicle sales                                                   10,874               9,843
                                                                   --------            --------
                                                                     77,653              70,943
Cost of sales:
     Branch cost                                                     48,244              42,677
     Vehicle cost                                                     9,173               8,465
                                                                   --------            --------
                                                                     57,417              51,142
                                                                   --------            --------

     Gross profit                                                    20,236              19,801

Operating expenses:
     Selling, general and administrative                             11,859              10,049
     Loss (gain) on sale of property and equipment                        6                 (32)
     Loss related to flood                                            2,860                  --
     Merger costs                                                        --               1,233
                                                                   --------            --------

         Earnings from operations                                     5,511               8,551

Other (income) expense:
     Interest expense                                                 6,452                 419
     Other income                                                      (123)                (32)
                                                                   --------            --------

         Earnings (loss) before income taxes                           (818)              8,164

Income taxes                                                           (314)              3,143
                                                                   --------            --------

         Net earnings (loss)                                       $   (504)           $  5,021
                                                                   ========            ========
</TABLE>


See accompanying notes to condensed consolidated financial statements


                                       2
<PAGE>

                 INSURANCE AUTO AUCTIONS, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                                              THREE MONTHS ENDED
                                                                        -------------------------------
                                                                          SUCCESSOR        PREDECESSOR
                                                                        -------------     -------------
                                                                          MARCH 26,          MARCH 27,
                                                                             2006              2005
                                                                        -------------     -------------
                                                                                  (unaudited)
<S>                                                                     <C>                 <C>
Cash flows from operating activities:
Net earnings (loss)                                                       $   (504)           $  5,021
Adjustments to reconcile net earnings (loss) to net cash
   provided by operating activities:
     Depreciation and amortization                                           4,933               3,203
     (Gain) loss on disposal of fixed assets                                   806                 (32)
     Share-based compensation expense                                        1,020                  --
     Deferred compensation related to restricted stock                          --                 695
     Deferred income taxes                                                   1,883                  15
     Tax benefit related to employee stock compensation                         --                  94

     Changes in assets and liabilities (excluding effects of acquired
       companies):
       (Increase) decrease in:
         Accounts receivable, net                                           (3,239)               (726)
         Income tax receivable                                                   9                  --
         Inventories                                                          (928)             (1,041)
         Other current assets                                                   22              (1,891)
         Other assets                                                          387                 (80)
       Increase (decrease) in:
         Accounts payable                                                    6,228               2,465
         Accrued liabilities                                                 6,368                (583)
         Income taxes                                                           --               2,946
                                                                          --------            --------
     Net cash provided by operating activities                              16,985              10,086
                                                                          --------            --------

Cash flows from investing activities:
   Capital expenditures                                                     (4,418)             (3,148)
   Acquisition, net of cash acquired                                        (2,519)                 --
   Proceeds from disposal of property and equipment                             62                  88
                                                                          --------            --------
     Net cash used in investing activities                                  (6,875)             (3,060)
                                                                          --------            --------

Cash flows from financing activities:
   Proceeds from issuance of common stock                                       --                 749
   Contributed capital                                                         150                  --
   Proceeds from short-term borrowings                                          --               3,000
   Principal payments on long-term debt                                       (287)             (1,887)
   Purchase of treasury stock                                                   --                  (1)
   Principal payments on capital leases                                       (103)               (378)
                                                                          --------            --------
Net cash provided by (used in) financing activities                           (240)              1,483
                                                                          --------            --------

Net increase in cash and cash equivalents                                    9,870               8,509

Cash and cash equivalents at beginning of period                            25,882              13,325
                                                                          --------            --------

Cash and cash equivalents at end of period                                $ 35,752            $ 21,834
                                                                          ========            ========

Supplemental disclosures of cash flow information:
     Interest paid                                                        $  2,083            $    370
                                                                          ========            ========
     Income taxes paid                                                    $    125            $    154
                                                                          ========            ========
     Income taxes refunded                                                $  1,950            $      2
                                                                          ========            ========
</TABLE>


See accompanying notes to condensed consolidated financial statements.



                                       3
<PAGE>

                 INSURANCE AUTO AUCTIONS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


(1)  SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

     As used in these notes, unless the context requires otherwise, the
     "Company," "IAAI," "we," "us," "our," and other similar terms refer to
     Insurance Auto Auctions, Inc. and its subsidiaries. IAAI is a wholly-owned
     subsidiary of Axle Holdings, Inc., a Delaware corporation ("Axle
     Holdings"), which is a wholly-owned subsidiary of Axle Holdings II, LLC, a
     Delaware limited liability company ("LLC") that is controlled by affiliates
     of Kelso & Company, L.P. ("Kelso"). Kelso owns 84.6 % of the LLC, Parthenon
     Investors II, L.P. and its affiliates ("Parthenon") own 10.4% of the LLC;
     Magnetite Asset Investors III, L.L.C., Brian Clingen and Dan Simon (the
     "other investors") own approximately 4.9% of the LLC; and Company
     management owns the remaining 0.1% of the LLC.

     Background

     IAAI operates in a single business segment--providing insurance companies
     and other vehicle suppliers cost-effective salvage processing solutions,
     including selling total loss and recovered theft vehicles. Fiscal year 2005
     consisted of 52 weeks and ended on December 25, 2005. Fiscal year 2006 will
     consist of 53 weeks and will end on December 31, 2006.

     On May 25, 2005, the Company completed merger transactions that are
     described in Note 2. This change creates many differences between reporting
     for IAAI post-merger, as successor, and IAAI pre-merger, as predecessor.
     The accompanying condensed consolidated financial statements and the notes
     to the condensed consolidated financial statements reflect separate
     reporting periods for the predecessor and successor company where
     applicable.

     Principles of Consolidation

     The accompanying unaudited condensed consolidated financial statements
     include the accounts of IAAI and its wholly-owned subsidiaries and have
     been prepared in accordance with accounting principles generally accepted
     in the United States ("GAAP") for interim financial reporting and in
     accordance with Rule 10-01 of Regulation S-X. Accordingly, they do not
     include all of the information and notes required by GAAP for complete
     financial statements.

     In the opinion of management, the accompanying unaudited condensed
     consolidated financial statements contain all adjustments (consisting of
     normal recurring items, unless otherwise noted) necessary for a fair
     presentation of results for the interim periods presented. The results of
     operations for any interim period are not necessarily indicative of results
     to be expected for a full year. The condensed consolidated balance sheet of
     the Company at December 25, 2005, has been derived from audited financial
     statements but does not include all disclosures required by GAAP. These
     financial statements and footnote disclosures should be read in conjunction
     with the Company's audited consolidated financial statements and notes
     thereto for the year ended December 25, 2005, which appear in the Company's
     Annual Report on Form 10-K filed with the Securities and Exchange
     Commission on March 27, 2006 and Amendment No. 1 thereto filed on March 31,
     2006.

     Reclassification

     Certain prior year amounts have been reclassified to conform to the current
     year presentation. Such reclassifications had no material effect on the
     Company's previously reported consolidated financial position, results of
     operations or cash flows.



                                       4
<PAGE>
     Disclosures About Fair Value of Financial Instruments

     The Company's financial instruments include cash and cash equivalents,
     accounts receivable and long-term debt. The fair values of these
     instruments approximate their carrying values other than long-term debt. As
     of March 26, 2006, the fair value of the Company's 11% Senior Notes due
     2013 was $156.4 million and the fair value of the Company's term loan under
     its senior credit facilities was $115.6 million.

     Use of Estimates

     The preparation of financial statements in conformity with GAAP requires
     management to make estimates and assumptions that affect the reported
     amounts of assets and liabilities at the date of the financial statements
     and the reported amounts of revenues and expenses during the reporting
     period. Actual amounts could differ from those estimates and assumptions.

     Stock Based Compensation

     The matter discussed in this Note should be read in conjunction with
     disclosures made in Note 8. In December 2004, the Financial Accounting
     Standards Board issued SFAS No. 123R, Share-Based Payment ("SFAS 123R").
     SFAS 123R is a revision of SFAS No. 123, Accounting for Stock-Based
     Compensation ("SFAS 123"), and supersedes Accounting Principles Board
     Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), and
     its related implementation guidance. On December 26, 2005, the Company
     adopted the provisions of SFAS 123R using the prospective method. Under the
     prospective method, the Company accounts for awards outstanding as of
     December 25, 2005 using the accounting principles originally applied,
     SFAS 123 and APB 25. For awards issued after December 25, 2005 and for
     awards modified, repurchased or cancelled after December 25, 2005, the
     Company accounts for awards at fair value using the accounting principles
     under SFAS 123R. The Company is permitted to apply the prospective method
     under SFAS 123R as the Company elected to use the minimum value method of
     measuring share options for pro forma disclosure purposes under SFAS 123 in
     the prior periods. Had the Company elected to use the fair value method for
     pro forma disclosure purposes under SFAS 123, it would have been required
     to recognize more compensation expense in the Statement of Operations under
     SFAS 123R for periods beginning on or after December 25, 2005.

     SFAS 123R requires entities to recognize compensation expense for awards of
     equity instruments to employees based on the grant-date fair value of those
     awards. SFAS 123R also requires the benefits of tax deductions in excess of
     recognized compensation expense to be reported as a financing cash flow,
     rather than as an operating cash flow as prescribed under the prior
     accounting rules. This requirement reduces net operating cash flows and
     increases net financing cash flows in periods after adoption. Total cash
     flow remains unchanged from what would have been reported under prior
     accounting rules.

     Prior to the adoption of SFAS 123R, the Company followed the intrinsic
     value method in accordance with APB 25 to account for its employee stock
     options. Accordingly, compensation expense was recognized when the fair
     value of the grant exceeded the exercise price. The adoption of SFAS 123R
     primarily resulted in a change in the Company's method of recognizing the
     market value of share based compensation and estimating forfeitures for all
     unvested awards. Specifically, the adoption of SFAS 123R resulted in the
     recording of compensation expense for employee stock options. The effect of
     adopting SFAS 123R was an increase of $0.1 million on the loss before
     income tax.

     There was no material impact to operating or financing cash flow or net
     loss for the three months ended March 26, 2006. When applying the
     prospective method, the Company is not permitted to provide pro forma
     disclosures as was previously required under SFAS 123. As a result of the
     merger, the Company's capital structure and its stock compensation plans
     changed significantly. Consequently, the stock based compensation
     information for the three months ended March 27, 2005 is not comparative to
     the three months ended March 26, 2006. As such, comparative data is not
     presented in the Notes related to stock based compensation.



                                       5
<PAGE>
(2)  MERGER TRANSACTIONS

     Effective May 25, 2005, IAAI became a direct, wholly owned subsidiary of
     Axle Holdings, which is owned by the LLC (which is controlled by Kelso). As
     part of the merger transactions, IAAI entered into new senior credit
     facilities, comprised of a $50.0 million revolving credit facility and a
     $115.0 million term loan, which were guaranteed by all of IAAI's then
     existing domestic subsidiaries. As part of the merger transactions, IAAI
     also issued $150.0 million of 11% Senior Notes due 2013 (the "notes"). IAAI
     received approximately $143.6 million of cash equity contributions from
     Kelso, Parthenon, the other investors and certain members of management in
     connection with the merger transactions.

     IAAI used the net proceeds of these financings and equity contributions to:
     (i) fund the cash consideration payable to the Company's shareholders and
     option holders under the merger agreement; (ii) repay any outstanding
     principal and accrued interest under the Company's prior credit facility;
     and (iii) pay related transaction fees and expenses.

     The merger was recorded in accordance with Statement of Financial
     Accounting Standards No. 141 ("SFAS 141"). The Company has made certain
     adjustments to increase or decrease the carrying amount of assets and
     liabilities as a result of estimates and certain assumptions the Company
     believes are reasonable, which, in a number of instances, has resulted in
     changes to amortization and depreciation expense amounts. The estimates are
     based on preliminary valuations and information currently available and are
     derived from management's estimates and judgment. The Company believes that
     the valuations and estimates are a reasonable basis for the allocation of
     the purchase price. However, the Company's analysis of the fair value
     estimates is continuing to be refined in accordance with SFAS 141. As
     additional information becomes available, the underlying assets or
     liabilities may need to be adjusted, thereby impacting intangible asset
     estimates, as well as goodwill. During the quarter ended March 26, 2006,
     the Company recorded an increase in fixed assets of $0.5 million, a
     decrease in deferred tax assets and current liabilities of $0.2 million and
     a corresponding decrease to goodwill of $0.3 million, resulting from the
     continued analysis of the fair values of the assets acquired and
     liabilities assumed at the date of acquisition. The following table
     summarizes the estimated fair value of the assets acquired and liabilities
     assumed (in thousands):


<TABLE>
<S>                                                              <C>
     Current assets .........................................    $110,253
     Property, plant, & equipment ...........................      75,873
     Deferred income tax asset ..............................      15,122
     Goodwill ...............................................     190,772
     Income tax receivable ..................................       4,477
     Intangibles ............................................     131,500
     Debt issuance cost .....................................       9,357
     Other ..................................................         760
                                                                 --------
           Total assets .....................................    $538,114

     Current liabilities ....................................    $ 60,112
     Capital lease obligation ...............................       1,142
     Senior notes ...........................................     150,000
     Credit facilities ......................................     115,000
     Deferred income tax liability ..........................      46,574
     Unfavorable leases .....................................       3,800
     Other ..................................................      12,233
                                                                 --------
           Total liabilities ................................    $388,861
                                                                --------

           Net assets acquired ..............................    $149,253
                                                                 ========
</TABLE>


     These valuations resulted in recognition of $131.5 million of intangibles,
     which are comprised of $102.5 million in supplier relationships, $0.6
     million in non-compete agreements, $14.9 million in trade names, and $13.5
     million in proprietary software.




                                       6
<PAGE>
     SIGNIFICANT ITEMS AFFECTING COMPARABILITY

     The merger transactions resulted in a new basis of accounting under SFAS
     141. This change creates many differences between reporting for IAAI
     post-merger, as successor, and IAAI pre-merger, as predecessor. The
     predecessor financial data for periods ending on or prior to May 24, 2005,
     generally will not be comparable to the successor financial data for
     periods after that date. The merger resulted in IAAI having an entirely new
     capital structure, which results in significant differences between
     predecessor and successor in the equity sections of the statements. In
     addition, interest expense, debt and debt issuance costs will not be
     comparable between the predecessor and the successor. The Company has made
     certain adjustments to increase or decrease the carrying amount of assets
     and liabilities as a result of preliminary estimates and certain
     assumptions the Company believes are reasonable, which, in a number of
     instances, has resulted in changes to amortization and depreciation expense
     amounts. The final appraisals are not yet complete, and thus the Company
     has not yet completed its allocation of purchase price and may make further
     adjustments to the preliminary allocations in subsequent periods.

     The following table reflects the unaudited pro forma results as if the
     acquisition occurred on December 26, 2004 (in thousands):


<TABLE>
<CAPTION>
                                        -------------------------
                                            THREE MONTHS ENDED
                                        -------------------------
                                        SUCCESSOR     PREDECESSOR
                                        ---------     -----------
                                        MARCH 26,      MARCH 27,
                                          2006           2005
                                        ---------     ----------
<S>                                     <C>           <C>
     Revenue                            $ 77,653       $ 70,943
     Earnings (loss) before taxes           (818)            61
     Earnings (loss)                        (504)            38
 </TABLE>

     The pro forma results reflect the incremental interest related to the new
     debt, changes in amortization and depreciation expense due to the change in
     basis and related remaining lives, and the addition of the annual financial
     advisory service fee for services provided by Kelso.

(3)  ACCOUNTS RECEIVABLE

     Accounts receivable consists of the following as of March 26, 2006 and
     December 25, 2005:


<TABLE>
<CAPTION>
                                                  SUCCESSOR       SUCCESSOR
                                                  ---------      ------------
                                                  MARCH 26,      DECEMBER 25,
                                                    2006             2005
                                                  ---------      ------------
                                                     (dollars in thousands)
<S>                                               <C>            <C>
     Unbilled receivables                           $  37,136     $  35,534
     Trade accounts receivable                         12,243        11,458
     Other receivables                                  1,361           412
                                                    ---------     ---------
                                                       50,740        47,404
     Less allowance for doubtful accounts                (514)         (484)
                                                    ---------     ---------
                                                    $  50,226     $  46,920
                                                    =========     =========
</TABLE>

     Unbilled receivables represent amounts paid to third parties on behalf of
     insurance companies for which the Company will be reimbursed when the
     vehicle is sold. Trade accounts receivable include fees and proceeds to be
     collected from both insurance companies and buyers.


                                       7
<PAGE>
(4)  PROPERTY AND EQUIPMENT

     Property and equipment consists of the following at March 26, 2006 and
     December 25, 2005:


<TABLE>
<CAPTION>
                                            SUCCESSOR           SUCCESSOR
                                           -----------         ------------
                                            MARCH 26,          DECEMBER 25,
                                              2006                  2005
                                           -----------         ------------
                                                (dollars in thousands)
<S>                                        <C>                 <C>
     Land                                   $   5,051            $  5,051
     Buildings and improvements                 8,567               6,534
     Equipment                                 22,562              27,295
     Leasehold improvements                    51,932              44,525
                                            ---------            --------
                                               88,112              83,405
     Less accumulated depreciation
        and amortization                       (9,924)             (6,174)
                                            ---------            --------
                                            $  78,188            $ 77,231
                                            =========            ========
</TABLE>


     Leasehold improvements include landlord financed projects of $5.5 million.


(5)  GOODWILL AND OTHER INTANGIBLES

     The Company will perform its annual impairment test during the second
     quarter of this year. As of March 26, 2006, the Company had $190.8 million
     of goodwill recorded in the Company's consolidated financial statements
     that was recorded as a result of the merger transactions. The additional
     balance of $2.5 million was primarily due to the acquisition of NW Penn
     Auction Sales/Warren County Salvage in Erie, Pennsylvania during the first
     quarter of 2006.

     Goodwill and other intangibles are recorded at cost less accumulated
     amortization and consist of the following at March 26, 2006 and
     December 25, 2005:


<TABLE>
<CAPTION>
                                                       COST
                                 ----------------------------------------------
                                                     MARCH 26,     DECEMBER 25,
                                 ASSIGNED LIFE         2006           2005
                                 -------------       --------      ------------
                                               (dollars in millions)
<S>                              <C>                 <C>           <C>
     SUCCESSOR
     Goodwill                     Indefinite             193.3         191.3
     Supplier relationships       20 years               102.5         102.5
     Trade names                  15 years                14.9          14.9
     Software                     6 years                 13.5          13.5
     Covenants not to compete     12 to 18 months          0.9           0.7
                                                        ------        ------
                                                        $325.1        $322.9
                                                        ======        ======
</TABLE>

<TABLE>
<CAPTION>
                                             ACCUMULATED AMORTIZATION
                                 ----------------------------------------------
                                                     MARCH 26,     DECEMBER 25,
                                 ASSIGNED LIFE         2006            2005
                                 -------------       --------      ------------
                                               (dollars in millions)
<S>                              <C>                 <C>           <C>
     SUCCESSOR
     Supplier relationships       20 years                (4.3)         (3.1)
     Software                     6 years                 (1.9)         (1.3)
     Trade names                  15 years                (0.8)         (0.6)
     Covenants not to compete     12 to 18 months         (0.4)         (0.2)
                                                        ------        -------
                                                        $ (7.4)       $ (5.2)
                                                        ======        ======
</TABLE>



                                       8
<PAGE>

     Based upon existing intangibles, the projected annual amortization expense
     is $8.1 million for 2006 and $8.0 million for each of the years 2007
     through 2010.


(6)  LONG-TERM DEBT

     Long-term debt is summarized as follows:


<TABLE>
<CAPTION>
                                            SUCCESSOR          SUCCESSOR
                                          -------------      ------------
                                            MARCH 26,        DECEMBER 25,
                                              2006              2005
                                          -------------      ------------
                                               (dollars in thousands)
<S>                                       <C>               <C>
     11% senior notes                         $ 150,000       $   150,000
     Senior secured credit facilities           114,039           114,326
                                              ---------       -----------
                                                264,039           264,326
     Less current installments                    1,143             1,143
                                             ----------       -----------
                                             $  262,896       $   263,183
                                             ==========       ===========
</TABLE>

     SENIOR NOTES

     IAAI has outstanding $150.0 million of 11% Senior Notes due April 1, 2013.
     The notes are non-callable for four years, after which they are callable at
     a premium declining ratably to par at the end of year six. The notes
     contain covenants that among other things, limit the issuance of additional
     indebtedness, the incurrence of liens, the payment of dividends or other
     distributions, distributions from certain subsidiaries, the issuance of
     preferred stock, the sale of assets and subsidiary stock, transactions with
     affiliates and consolidations, mergers and transfers of assets. All of
     these limitations and prohibitions, however, are subject to a number of
     important qualifications set forth in the indenture.

     CREDIT FACILITIES

     IAAI's senior secured credit facilities are comprised of a $50.0 million
     revolving credit facility and a $115.0 million term loan. The senior
     secured credit facilities are secured by a perfected first priority
     security interest in all present and future tangible and intangible assets
     of the Company and the guarantors, including the capital stock of the
     Company and each of its direct and indirect domestic subsidiaries and 65%
     of the capital stock of its direct and indirect foreign subsidiaries. The
     seven-year term loan is payable in quarterly installments equal to 0.25% of
     the initial aggregate principle amount, beginning December 31, 2005, with
     the balance payable at maturity. The senior secured credit facilities are
     subject to mandatory prepayments and reduction in an amount equal to (i)
     the net proceeds of certain debt issuances, asset sales, recovery events,
     and sales and leasebacks of real property, (ii) 50% of the net proceeds of
     certain equity offerings or contributions by Axle Holdings and (iii) for
     any fiscal year ending on or after December 31, 2005, 75% of excess cash
     flow, as defined in the credit agreement, when the consolidated leverage
     ratio, as defined in the credit agreement, is 4.0 or greater, or 50% of
     excess cash flow when the consolidated leverage ratio is at least 3.0 but
     less than 4.0.

     Under the terms of the credit agreement, interest rates and borrowings are
     based upon, at the Company's option, Eurodollar or prime rates. The terms
     of the agreement include a commitment fee based on unutilized amounts and
     an annual agency fee. The agreement includes covenants that, among other
     things, limit or restrict the Company's and its subsidiaries' abilities to
     dispose of assets, incur additional indebtedness, incur guarantee
     obligations, prepay other indebtedness, including the senior notes, pay
     dividends, create liens, make equity or debt investments, make
     acquisitions, modify the terms of the indenture, engage in mergers, make
     capital expenditures and engage in certain affiliate transactions. The
     agreement also requires the Company to at all times have at least 50% of
     the aggregate principal amount of the notes and the term loan subject to
     either a fixed interest rate or interest rate protection for a period of
     not less than three years. The senior secured credit facilities are subject
     to the following financial covenants: (i) minimum consolidated interest
     coverage and (ii) maximum consolidated leverage. The Company is in
     compliance with these credit agreement covenants as of March 26, 2006.



                                       9
<PAGE>
     The revolver was made for working capital and general corporate purposes.
     There were no borrowings under the revolver at the time of the merger or as
     of March 26, 2006, although the Company did have outstanding letters of
     credit in the aggregate amount of $2.0 million as of March 26, 2006.

(7)  INCOME TAXES

     Income taxes were computed using the effective tax rates estimated to be
     applicable for the full fiscal years, which are subject to ongoing review
     and evaluation by us.

     The income tax receivable as of March 26, 2006 is due to the recording of a
     federal income tax benefit expected to be utilized in 2006.

     The income tax benefit of $0.3 million for the March 26, 2006 year to date
     period was based on our expected effective tax rate for the 2006 fiscal
     year.

     We evaluate the realizability of our deferred tax assets on an ongoing
     basis. In assessing the realizability of deferred tax assets, we consider
     whether it is more likely than not that some portion or all of the deferred
     tax assets will not be realized. The ultimate realization of deferred tax
     assets is dependent upon the generation of future taxable income during the
     periods in which those temporary differences become deductible. Management
     considers the scheduled reversal of deferred tax liabilities, projected
     future taxable income, and tax planning strategies in making this
     assessment. Based upon the level of historical taxable income and
     projections for future taxable income over the periods in which the
     deferred tax assets are deductible, we believe it is more likely than not
     that we will realize the benefits of these deductible differences, net of
     the existing valuation allowances at March 26, 2006. We have established a
     valuation allowance when the utilization of the tax asset is uncertain.
     Additional temporary differences, future earning trends and/or tax
     strategies may occur which could warrant a need for establishing an
     additional valuation allowance or a reserve.

(8)  EMPLOYEE BENEFIT PLANS

     STOCK BASED COMPENSATION

          AXLE HOLDINGS PLAN

          In May, 2005, Axle Holdings adopted the Axle Holdings, Inc. Stock
          Incentive Plan (the "Axle Holdings Plan"), which is intended to
          provide equity incentive benefits to certain Company management
          employees. As such, it is appropriate to account for the Axle Holdings
          Plan as a direct plan of the Company.

          Under the Axle Holdings Plan, there are two types of options: (1)
          service options, which vest in three equal annual installments
          commencing on the first anniversary of the grant date based upon
          service with Axle Holdings and its subsidiaries, including IAAI, and
          (2) exit options, which vest upon a change in equity control of the
          LLC. During the first quarter of 2006, Axle Holdings granted 2,666
          service options and 5,334 exit options. As of March 26, 2006, there
          were 557,256 options authorized and 528,704 granted. The contractual
          term of the options is 10 years.

          Service options are accounted as equity awards and, as such,
          compensation expense is measured based on the fair value of the award
          at the date of grant. Compensation expense is recognized over the
          three year service period, using the straight line attribution method,
          for awards granted after December 25, 2005 and the graded vesting
          attribution method for awards granted prior to December 25, 2005.



                                       10
<PAGE>

     Activity under the option plan for the three months ended March 26, 2006 is
     as follows:


<TABLE>
<CAPTION>
                                                    WEIGHTED     REMAINING
                                                     AVERAGE    CONTRACTUAL
                                                    EXERCISE        LIFE
                                       SHARES         PRICE     (IN MONTHS)
                                      ---------     --------    -----------
<S>                                   <C>           <C>         <C>
     Balance at December 25, 2005       526,704     $19.34
     Options granted                      8,000     $25.62
     Options cancelled                   (6,000)    $25.62
     Options exercised                       --
                                        -------
     Balance at March 26, 2006          528,704     $19.36         93.5
</TABLE>

     There were no options exercised as of March 26,2006. There were no options
     that vested during the three months ended March 26, 2006. The weighted
     average grant date fair value of the options granted during the three
     months ended March 26, 2006 was $14.83 per share. As of March 26, 2006, the
     total compensation expense related to unvested options not recognized was
     $0.6 million and the weighted average period in which it will be recognized
     was approximately 2.5 years.

     The fair value of each option grant is estimated on the date of the grant
     using the Black-Scholes option pricing model with the following weighted
     average assumptions for the options granted during the three months ended
     March 26, 2006:

<TABLE>
<S>                                              <C>
     Expected life (in years)                    6.0
     Risk-free interest rate                     4.7%
     Expected volatility                          43%
     Expected dividend yield                       0%
</TABLE>


     For the three months ended March 26, 2006, the expected life of each award
     granted was calculated using the simplified method in accordance with
     Securities and Exchange Commission Staff Accounting Bulletin No. 107,
     "Share-Based Payments." The volatility is based on the historic volatility
     of companies within related industries that are traded publicly, as IAAI is
     privately held with limited historic capital activity. The risk-free rate
     is based on implied yield currently available on U.S. Treasury zero coupon
     issues with remaining term equal to the expected life. Expected dividend
     yield is based on expectations and the lack of dividend payments
     historically.

     Under the exit options, in addition to the change in equity control
     requirement, the number of options is determined by a calculation based on
     return to Kelso that is performed at the time of the change in control. As
     the ultimate excercisability is contingent upon an event (specifically
     change of control), the compensation expense will not be recognized until
     such an event is consummated.

     There were 257,954 options exercisable as of March 26, 2006. The weighted
     average exercise price per vested option is $13.63 and, the weighted
     average remaining life of the vested options is approximately 6.6 years.


                                       11
<PAGE>
     LLC PROFIT INTERESTS

     The LLC's operating agreement provides for profit interests in the LLC to
     be held by certain designated employees of the Company. Upon an exit event,
     as defined by the LLC operating agreement, holders of profit interests may
     receive a cash distribution from the LLC.

     Two types of profit interests were created by the LLC operating agreement:
     (1) operating units, which vest in twelve equal quarterly installments
     commencing on the first anniversary of the grant date based upon service,
     and (2) value units, which vest upon a change in equity control of the LLC.
     The number of value units ultimately granted will be determined based on
     the strike price and certain performance hurdles at the time of change in
     equity control. There were 191,152 operating units and 382,304 value units
     authorized and awarded to employees of the Company during the prior year
     with a strike price equal to $25.62 for the operating units. The
     contractual term of the profit interests is ten years.

     Prior to the adoption of SFAS 123R, both the operating units and the value
     units were considered liability awards that are remeasured at each
     reporting period based on the intrinsic value method in accordance with the
     requirements of EITF 00-23 "Issues Related to the Accounting for Stock
     Compensation under APB Opinion No. 25 and FASB Interpretation No. 44." In
     connection with the adoption of SFAS 123R, the Company elected to continue
     using the intrinsic value method. The intrinsic value per share as of March
     26, 2006 was $8.45. The related liability and compensation expense of the
     LLC, which is for the benefit of Company employees, results in a capital
     contribution from the LLC to the Company and compensation expense for the
     Company. Compensation expense related to the service units is recognized
     using the graded vesting attribution method. However, no compensation
     expense will be recognized on the value units until a change in equity
     control is consummated as excercisability and the number of units to be
     received is contingent upon a change in control.

     In connection with the operating units, $1.0 million of expense was
     recorded during the quarter ended March 26, 2006. As of March 26, 2006,
     there were 47,788 profit interests vested and $0.6 million of remaining
     compensation to be recognized over approximately 2.2 years.

(9)  COMMITMENTS AND CONTINGENCIES

     LEASES

     IAAI leases certain facilities and equipment under operating and capital
     leases. As of March 26, 2006, IAAI had not entered into any capital leases
     in the current year.

     TEXAS FLOODING

     On March 19, 2006, the Company's Grand Prairie, Texas facility was flooded
     when the local authorities opened flood gates causing the waters of
     Mountain Creek to spill over into the facility, resulting in water damage
     to the majority of vehicles on the property as well as interior office
     space. We have recorded an estimated loss of $2.9 million in the period
     ended March 26, 2006, which is comprised of an estimated $2.8 million in
     losses on vehicles impacted by the flood, $0.8 million for damaged interior
     office space, $0.3 million related to clean-up of the facility, and an
     offset of $1.0 million in anticipated proceeds from our insurance carrier.
     The Company has resumed auctions at the facility. The $2.8 million loss
     related to the vehicles impacted by the flood is based on post-flood
     auction results, including the vehicle sale proceeds and revenue, less all
     related expenses. The majority of the vehicles will be sold at future
     auctions. As a result, actual losses realized may differ from the Company's
     initial estimates.

(10) RELATED PARTY TRANSACTIONS

     Under the terms of a financial advisory agreement, IAAI pays Kelso an
     annual financial advisory fee of $0.5 million, payable quarterly in
     advance, for services to be provided by Kelso to IAAI and reimburses
     Kelso's expenses incurred in connection with these services. The financial
     advisory agreement provides that IAAI indemnify Kelso, Axle Holdings and
     Kelso's officers, directors, affiliates, and their respective partners,
     employees, agents and control persons (as such term is used in the
     Securities Act of 1933, as amended, and the rules and regulations
     thereunder) in connection with the merger transactions (including the
     financing of the




                                       12
<PAGE>

     merger), Kelso's investment in and control of IAAI, and the services
     rendered to IAAI under the financial advisory agreement. The financial
     advisory agreement also provides for the payment of certain fees and the
     reimbursement of related expenses by IAAI to Kelso in connection with
     future investment banking services.

(11) ACQUISITIONS AND DIVESTITURES

     In the first quarter of 2006, the Company acquired NW Penn Auction
     Sales/Warren County Salvage located in Erie, Pennsylvania. The acquisition
     leverages the Company's existing regional coverage in this market. The
     acquisition is accounted for as a purchase business combination and the
     results of operations of the acquired business will be included in our
     future consolidated financial statements from the date of acquisition. The
     aggregate purchase price of this acquisition was $2.7 million of which 86%
     is related to goodwill.

(12) SUBSEQUENT EVENTS

     The Company acquired several salvage pools in the Midwest market. The
     acquisitions leverage the Company's existing regional coverage in this
     market. The acquisitions are accounted for as a purchase business
     combination and the results of operations of the acquired businesses will
     be included in our consolidated financial statements from the date of
     acquisition. The aggregate purchase price of these acquisitions was $16.3
     million.



                                       13
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

         The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the condensed
consolidated financial statements and notes thereto included elsewhere in this
Report on Form 10-Q ("Report"). This discussion and analysis contains
forward-looking statements that are based on the beliefs of our management, as
well as assumptions made by, and information currently available to, management.
Our actual results could differ materially from those discussed in or implied by
forward-looking statements for various reasons including those discussed in
"Special Note Regarding Forward-Looking Statements" and in "Risk Factors"
contained in our Form 10-K, as amended, for the year ended December 25, 2005.

         Refer to IAAI's Form 10-K, as amended, for management's discussion and
analysis of the financial condition and results of operations of IAAI for the
year ended December 25, 2005. The following is management's discussion and
analysis of the financial condition and results of operations of IAAI for the
quarter ended March 26, 2006.

OVERVIEW

         We provide insurance companies and other vehicle suppliers
cost-effective salvage processing solutions principally on a consignment basis.
The consignment method includes both a percentage of sale and fixed fee basis.
Under the percentage of sale and fixed fee consignment methods, the vehicle is
not owned by us and only the fees associated with processing the vehicle are
recorded as revenue. The percentage of sale consignment method offers
potentially increased profits over fixed fee consignment by providing incentives
to both ourselves and the salvage provider to invest in vehicle enhancements,
thereby maximizing vehicle selling prices. The proceeds from the sale of the
vehicle itself are not included in revenue. We also, on a very limited basis,
sometimes acquire vehicles via purchase. Under the purchase method, the vehicle
is owned by us, and the proceeds from the sale of the vehicle are recorded as
revenue. Our operating results are subject to fluctuations, including quarterly
fluctuations, that can result from a number of factors, some of which are more
significant for sales under the purchase method.

SIGNIFICANT ITEMS AFFECTING COMPARABILITY

         The merger transactions in 2005 resulted in a new basis of accounting
under SFAS 141. This change creates many differences between reporting for IAAI
post-merger, as successor, and IAAI pre-merger, as predecessor. The predecessor
financial data for periods ending on or prior to May 24, 2005, generally will
not be comparable to the successor financial data for periods after that date.
The merger resulted in IAAI having an entirely new capital structure, which
results in significant differences between predecessor and successor in the
equity sections of the financial statements. In addition, interest expense and
debt will not be comparable between the predecessor and the successor. We have
made certain adjustments to increase or decrease the carrying amount of assets
and liabilities to their fair values as of the merger date as a result of
preliminary estimates and certain assumptions we believe are reasonable, which,
in a number of instances, have resulted in changes to amortization and
depreciation expense amounts. The final appraisals are not yet complete, and
thus we have not yet completed our allocation of purchase price and may make
further adjustments to the preliminary allocations in subsequent periods.

ACQUISITIONS AND NEW OPERATIONS

         As of May 1, 2006, we have a total of 83 sites. In the first quarter
2006, we acquired a branch in Erie, Pennsylvania.

RESULTS OF OPERATIONS

Three Months Ended March 26, 2006 Compared to the Three Months Ended March 27,
2005

         Revenues were $77.7 million for the three months ended March 26, 2006,
up from $70.9 million for the same three month period in 2005. Fee income in the
first quarter increased 9% to $66.8 million, versus $61.1 million in the first
quarter of last year due to more favorable pricing.



                                       14
<PAGE>
         Cost of sales increased $6.3 million to $57.4 million for the three
months ended March 26, 2006, versus $51.1 million for the same period last year.
Vehicle cost of $9.2 million is up $0.7 million from the $8.5 million incurred
in the first quarter of 2005. Branch cost of $48.2 million increased $5.5
million from $42.7 million for the same period last year. Branch cost includes
tow, office and yard labor, occupancy, depreciation, and other costs inherent in
operating a branch. The increase in costs in the first quarter of 2006 compared
to the same period last year is attributable to increased towing, occupancy and
yard expenses.

         Gross profit increased 2.0% to $20.2 million for the three months ended
March 26, 2006, from $19.8 million for the comparable period in 2005, primarily
resulting from favorable pricing.

         Selling, general and administrative expense of $11.9 million increased
$1.9 million, or 19%, from the $10.0 million of expense incurred during the
first quarter of last year. The increase is primarily related to the
amortization of the intangibles arising from the merger and stock-based
compensation.

         The loss of $2.9 million related to the flood at our Grand Prairie,
Texas facility consists of $2.8 million estimated loss on vehicles impacted by
the flood, $0.8 million reserved for fixed asset impairment, $0.3 million
related to clean-up of the facility and an offset of $1.0 million in anticipated
proceeds from our insurance carrier.

         Interest expense increased to $6.5 million for the three months ended
March 26, 2006, from $0.4 million for the comparable period in 2005. The
increase was primarily attributable to interest incurred on the $150.0 million
of 11% Senior Notes due 2013 and a new $115.0 million term loan with a seven
year maturity.

         The Company's effective income tax rate is 38.4% and 38.5% in 2006 and
2005, respectively.


FINANCIAL CONDITION AND LIQUIDITY


         Historically, IAAI has relied on cash flows from operations and
revolving credit borrowings to finance our working capital requirements and
capital expenditures.

         Net cash provided by operating activities during the first quarter of
2006 was $17.0 million, a $6.9 million increase from the same period last year,
primarily as a result of costs of the merger transactions in the first quarter
of 2005 that were not incurred in the first quarter of 2006. We received an
aggregated $1.9 million refund of federal income taxes, relating to 2003 and
2004, during the first quarter of 2006. The refunds resulted from the
carry-back of net operating losses relating to the pre-merger period.

         Net cash used in investing activities during the first quarter of 2006
was $6.9 million, consisting primarily of funds used for the purchase of the
Erie, Pennsylvania facility and capital expenditures of $4.4 million. These
capital expenditures consisted of various branch improvements, including
upgrades to existing branches, the development of new facilities, and continued
enhancements to our new information technology system.

         Net cash used in financing activities during the first quarter of 2006
 was $0.2 million compared to $1.5 million provided by financing activities in
 the first quarter of 2005. This decrease resulted primarily from borrowings
 made under the predecessor credit facility in the first quarter of 2005 that
 were not made in the first quarter of 2006.

         At March 26, 2006, we had current assets of $121.9 million, including
$35.8 million in cash and cash equivalents, current liabilities of $70.1 million
and working capital of $51.8 million, which represents a $0.2 million decrease
from December 25, 2005.

         Our accounts receivable increased $3.3 million to $50.2 million as of
March 26, 2006, from $46.9 million as of December 25, 2005. Accounts receivable
consists of balances due from our salvage providers and buyers. Accounts
receivable also includes advance charges paid by us on behalf of salvage
providers. These charges typically include storage and tow fees incurred at a
temporary storage or repair shop prior to our moving the vehicle to one of our
facilities. Inventory increased $0.9 million to $20.5 million as of March 26,
2006, from $19.6 million as of December 25, 2005. Inventory consists of
capitalized tow charges on vehicles on hand and the cost of purchased vehicles
once title is received. Inventory increased due to increased inventory costs on
a per unit basis.

         Our senior credit facilities are comprised of a $50.0 million revolving
credit facility maturing in 2011 and a $115.0 million term loan facility
maturing in 2012. The revolver is principally used for working capital purposes,
and the term loan was used to finance the merger transactions. For purposes of
calculating interest, loans under the



                                       15
<PAGE>
senior credit facilities are designated as Eurodollar rate loans or, in certain
circumstances, base rate loans, plus applicable borrowing margins. Eurodollar
loans bear interest at the rate for deposits in dollars appearing on page 3570
of the Telerate screen as of 11:00 a.m., London time, two business days prior to
the beginning of the applicable interest period, plus a borrowing margin as
described below. Interest on Eurodollar rate loans is payable (i) as to any
Eurodollar loan having an interest period of three months or less, on the last
day of such interest period, and (ii) as to any Eurodollar loan having an
interest period longer than three months, each day that is three months, or a
whole multiple thereof, after the first day of such interest period and the last
day of such interest period. Base rate loans bear interest at (a) the greater of
(i) the rate most recently announced by the Bank of New York as its "prime rate"
in effect at its principal office in New York City and (ii) the Federal Funds
Effective Rate (as defined in our senior credit agreement) plus 0.50% per annum,
plus (b) a borrowing margin as described below. The margin varies from 2.25% to
2.75% on Eurodollar revolving loans and from 2.50% to 2.75% on Eurodollar term
loans. The margin varies from 1.25% to 1.75% on base rate revolving loans and
from 1.50% to 1.75% on base rate term loans. The amount of the margin is based
on our leverage ratio. As of March 26, 2006, the weighted average annual
interest rate applicable to Eurodollar rate loans was 7.4%. During the period
December 26, 2005 to March 26, 2006, the weighted average annual interest rate
for the new senior credit facilities was 7.2%. A commitment fee of 0.50% on the
unused portion of the senior credit facilities is payable on a quarterly basis.
As of March 26, 2006, $48.0 million was available for borrowing under the senior
credit facilities and we were in compliance with our covenants under the senior
credit facilities.

         Our obligations under the senior credit facilities are guaranteed by
direct and indirect significant subsidiaries of IAAI. In addition, each future
significant domestic subsidiary of IAAI is required to guarantee those
obligations. The senior credit facilities are secured by (1) all existing and
future property and assets, real and personal, of IAAI and each guarantor,
subject to certain exceptions; (2) a pledge of 100% of the stock of each of
IAAI's existing and future direct and indirect domestic subsidiaries; (3) a
pledge of 65% of the stock of each of IAAI's future direct and indirect foreign
subsidiaries; (4) all present and future intercompany debt of IAAI and each
guarantor; and (5) all proceeds of the assets described in clauses (1), (2), (3)
and (4) of this sentence. Under the senior credit facilities, we are required to
meet specified restrictive financial covenants, including a maximum consolidated
leverage ratio and minimum consolidated interest coverage ratio. The credit
facilities also contain various other covenants that limit our ability to, among
other things:

         o   incur additional indebtedness, including guarantees;

         o   create, incur, assume or permit to exist liens on property or
             assets;

         o   engage in sales, transfers and other dispositions of our property
             or assets;

         o   declare or pay dividends to, make distributions to, or make
             redemptions and repurchases from, equity holders;

         o   make or commit to make capital expenditures over certain
             thresholds;

         o   make loans and investments and enter into acquisitions and joint
             ventures;

         o   prepay, redeem or repurchase our debt, or amend or modify the terms
             of certain material debt or certain other agreements; and

         o   restrict our ability and the ability of our subsidiaries to pay
             dividends and make distributions.

         We are currently in compliance with our obligations under the senior
credit facilities.

         The covenants contained within the senior credit facilities are
critical to an investor's understanding of our financial liquidity, as a
violation could cause a default and lenders could elect to declare all amounts
borrowed due and payable. The coverage ratio covenants are based on consolidated
EBITDA. Consolidated EBITDA is defined as net earnings (loss) plus income tax
provision (benefit), interest (net), depreciation, and amortization with further
adjustments including non-cash items, nonrecurring items, and sponsor advisory
fees. While consolidated EBITDA is not a defined term under generally accepted
accounting principles in the United States, we believe that the


                                       16
<PAGE>

inclusion of consolidated EBITDA is appropriate, as it provides additional
information to demonstrate compliance with the financial covenants. Below is a
table detailing consolidated EBITDA (in thousands):


<TABLE>
<CAPTION>
                                                                                                               Twelve
                                                                                                               Months
                                                                Three Months Ended                             Ended
                                          -----------------------------------------------------------         --------
                                          June 26,       September 25,     December 25,      March 26,        March 26,
                                            2005             2005             2005             2006             2006
                                          --------       ------------      -----------       --------         --------
<S>                                       <C>            <C>               <C>               <C>              <C>
Net earnings/(loss)                       $ (9,961)        $    507         $ (1,441)        $   (504)        $(11,399)

Income taxes                                   445             (206)             185             (314)             110
Interest expense (net)                       2,790            6,210            5,865            6,329           21,194
Depreciation and amortization                4,120            4,481            5,515            4,933           19,049
                                          --------         --------         --------         --------         --------
     EBITDA                                 (2,606)          10,992           10,124           10,444           28,954

Non-cash charges(1)                            388                -                -              887            1,275

Non-recurring expense/(income)(2)           (3,197)             351             (171)           2,866             (151)

Merger costs                                19,529                -                -                -           19,529

Estimated cost savings                           -                -                -                -                -

Allowance per credit agreement (3)           1,000            1,000                -                -            2,000

Advisory service fees                           49              125              125              125              424
                                          --------         --------         --------         --------         --------
     Consolidated EBITDA                  $ 15,163         $ 12,468         $ 10,078         $ 14,322         $ 52,031
                                          ========         ========         ========         ========         ========
</TABLE>


 ----------------
 (1) For the quarter ended March 26, 2006, the non-cash charges included $1.0
     million of stock-based compensation expense, which was offset by $0.1
     million of rent expense reduction related to lessor-funded leasehold
     improvements.
 (2) For the quarter ended March 26, 2006, non-recurring expense consisted of a
     $2.9 million loss related to the Dallas flood.
 (3) Per the credit agreement, EBITDA was to be increased by $1.0 million for
     the three-month periods ended September 25, 2005, and June 26, 2005 for
     covenant purposes only.



         The term loan under the senior credit facilities is amortized quarterly
from December 31, 2005 through the date of maturity. The scheduled quarterly
amortization payments are $0.3 million per quarter, with a balloon payment of
$106.9 million due on May 19, 2012.

         With respect to fiscal years beginning 2006 and later, we are required
to make a mandatory annual prepayment of the term loan and the revolving loan in
an amount equal to 75% of excess cash flow, as defined in the senior credit
agreement, when the consolidated leverage ratio is 4.0x or greater, or 50% of
excess cash flow when the consolidated leverage ratio is at least 3.0x but less
than 4.0x. In addition, we are required to make a mandatory prepayment of the
term loans with, among other things:

         o   100% of the net cash proceeds of certain debt issuances, and sales
             and leasebacks of real property, subject to certain exceptions;

         o   50% of the net cash proceeds from the issuance of additional equity
             interests; and

         o   100% of the net cash proceeds from any property or asset sale or
             recovery event in an amount exceeding $2.5 million in any fiscal
             year, subject to certain exceptions and reinvestment requirements.

Mandatory prepayments will be applied first to the base rate term loans and then
to Eurodollar term loans.

         As of March 26, 2006, there were no borrowings under the revolving
credit facilities, although we did have outstanding letters of credit in the
aggregate amount of $2.0 million, and $115.0 million outstanding under the term
loan facility. At March 26, 2006, the interest rate on borrowings under the term
loan was 7.4%.



                                       17
<PAGE>
         We have issued $150.0 million of 11% Senior Notes that mature on
April 1, 2013, with interest paid semi-annually every April 1 and October 1.
Under the indenture governing the notes, subject to exceptions, we must meet a
minimum consolidated interest coverage ratio to incur additional indebtedness.
Prior to April 1, 2008, on any one or more occasions, we may use the net
proceeds of one or more equity offerings to redeem up to 35% of the aggregate
principal amount of the notes at a redemption price of 111.00% of the principal
amount, plus accrued and unpaid interest. Otherwise, the notes are not
redeemable until April 1, 2009. Starting on April 1, 2009, we have the option to
redeem all or a portion of the notes at a redemption price equal to a percentage
of the principal amount, plus accrued and unpaid interest. In the event of this
kind of an optional redemption, the redemption price would be 105.50% for the
12-month period beginning April 1, 2009; 102.75% for the 12-month period
beginning April 1, 2010; and 100.00% thereafter. If we experience specific kinds
of changes of control, we must offer to purchase the notes at a price of 101% of
their principal amount, plus accrued and unpaid interest. The indenture
governing the notes contains various covenants which, subject to exceptions,
limit our ability, and the ability of our restricted subsidiaries to, among
other things:

         o   borrow money;

         o   incur liens;

         o   pay dividends or make certain other restricted payments or
             investments;

         o   issue disqualified stock;

         o   merge, consolidate or sell all or substantially all of our or their
             assets;

         o   enter into transactions with affiliates;

         o   create restrictions on dividends or other payments by the
             restricted subsidiaries;

         o   sell certain assets and use proceeds from asset sales; and

         o   create guarantees of indebtedness by restricted subsidiaries.

         We have capital leases of approximately $0.6 million of which
approximately $0.4 million is classified as short term. Other long-term
liabilities included our post-retirement benefits liability that relates to a
prior acquisition. The amount recorded at March 26, 2005 for the post-retirement
benefits liability was approximately $1.3 million.

         We believe that existing cash, as well as cash generated from
operations, together with available borrowings under our new senior credit
facility, will be sufficient to fund capital expenditures and provide adequate
working capital for operations for the next 12 months.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         We are exposed to interest rate fluctuations on our floating rate
credit facility, under which we have outstanding a $115.0 million term loan at
March 26, 2006. We also have $150.0 million of senior notes at a fixed rate of
11%.



                                       18
<PAGE>


ITEM 4.  CONTROLS AND PROCEDURES.


EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

         As of the end of the period covered by this report, we evaluated, under
the supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, the effectiveness of the
design and operation of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as
amended). Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
effective as of the end of the period covered by this report.

         Our management, including our Chief Executive Officer and Chief
Financial Officer, has evaluated our internal control over financial reporting
to determine whether any changes occurred during the period covered by this
report that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting. During the period covered
by this Report, we made changes to our controls and procedures as part of our
ongoing monitoring and improvement of our controls. However, none of these
changes has materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.



                                       19
<PAGE>
                                     PART II
                                OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS.

There are no events to report under this item for the quarter ended March 26,
2006.

ITEM 1A. RISK FACTORS.

There are no material changes in our risk factors from those disclosed in our
2005 Annual Report on Form 10-K, as amended.


ITEM 6.  EXHIBITS AND REPORT ON FORM 8-K.

         (a)  EXHIBITS.

              See Index of Exhibits

         (b)  REPORTS ON FORM 8-K

              We filed a current report on Form 8-K, dated March 27, 2006,
              which contained a press release announcing financial results for
              the quarter and year ended December 25, 2005.

              We filed a current report on Form 8-K, dated May 4, 2006, which
              described the closing of the acquisitions of Indiana Auto Storage
              Pool Co., Inc. and Indiana Auto Storage Pool North Co., Inc.







                                       20
<PAGE>

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

         This Report contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, and 27A of the
Securities Act of 1933, as amended. Discussions containing such forward-looking
statements may be found in Part I, Item 2 hereof, and elsewhere within this
Report generally. In addition, when used in this Report, the words "believes,"
"anticipates," "expects," "should" and similar words or expressions are intended
to identify forward-looking statements. Although we believe that our plans,
intentions and expectations are reflected in or suggested by such
forward-looking statements are reasonable, such forward-looking statements are
subject to a number of risks and uncertainties that could cause actual results
to differ materially from the forward-looking statements made in this Report.
Many such factors are outside our control. Consequently, such forward-looking
statements should be regarded solely as our current plans, estimates and
beliefs. We do not undertake and specifically decline any obligation to publicly
release the results of any revisions to these forward-looking statements that
may be made to reflect any future events or circumstances after the date of such
statements or to reflect the occurrence of anticipated or unanticipated events.
All forward looking-statements attributable to persons acting on our behalf are
expressly qualified in their entirety by these cautionary statements.




                                       21
<PAGE>

                                   SIGNATURES


         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                                      INSURANCE AUTO AUCTIONS, INC.




Date: May 10, 2006                    By:     /s/ Scott P. Pettit
      ------------                         -------------------------------------
                                      Name:   Scott P. Pettit
                                      Title:  Senior Vice President and Chief
                                              Financial Officer (Duly Authorized
                                              Officer and Principal Financial
                                              Officer)



                                       22
<PAGE>
                                INDEX OF EXHIBITS



    Exhibit No.   Description of Document
    -----------   -----------------------

       31.1       Certification by the CEO pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.

       31.2       Certification by the CFO pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.

       32.1       Certification by the CEO pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002.

       32.2       Certification by the CFO pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002.







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